Haïti : Questions spécifiques - performance budgétaire, emploi public, pertes de la banque centrale, exportations de la sous-traitance

© 2005 International Monetary Fund June 2005 IMF Country Report No. 05/205 Haiti: Selected Issues This Selected Issues paper for Haiti was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on April 29, 2005. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Haiti or the Executive Board of the IMF. The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information. To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org. Copies of this report are available to the public from International Monetary Fund ● Publication Services 700 19th Street, N.W. ● Washington, D.C. 20431 Telephone: (202) 623 7430 ● Telefax: (202) 623 7201 E-mail: publications@imf.org ● Internet: http://www.imf.org Price: $15.00 a copy International Monetary Fund Washington, D.C. This page intentionally left blank INTERNATIONAL MONETARY FUND HAITI Selected Issues Prepared by P. Gajdeczka, L. Jaramillo, G. Everaert, C. Sancak (all WHD) vT T. Dalsgaard (FAD), and J. Mathisen (PDR) Approved by Western Hemisphere Department April 29, 2005 Contents I. Fiscal Performance and Medium-Term Issues A. Introduction....................................................................................................... B. Central Government Revenue—Current System.............................................. 5 C. Potential for Catching Up ................................................................................ 10 D. Trends in Central Government Expenditure.................................................... 12 E. Conclusions...................................................................................................... 14 II. Public Sector Employment in Haiti A. Introduction......................................................................................................16 B. Why Does a Sound Civil Service Matter?.......................................................16 C. Public Employment and Wage Trends in Haiti ...............................................17 D. Conclusion .......................................................................................................22 III. Losses of Haiti’s Central Bank A. Introduction......................................................................................................24 B. Sources of Financial Losses of the BRH .........................................................25 C. Addressing Losses of the BRH........................................................................26 D. Conclusion .......................................................................................................28 IV. Reserve Adequacy in Haiti A. Introduction......................................................................................................30 B. Indicators of Vulnerability and Reserve Adequacy in Haiti............................31 C. The Cost of Holding Reserves.........................................................................35 D. Conclusions......................................................................................................37 5 - 2 - V. Haiti—Assembly Sector Exports A. Introduction......................................................................................................40 B. Characteristics of the Haitian Assembly Industry ...........................................41 C. Challenges for the textile assembly sector.......................................................43 D. Conclusion .......................................................................................................47 Box 1V. Selected Reserve Adequacy Benchmarks....................................................................32 Tables I. 1. Comparison of Central G overnment Tax Structure.......................................... 6 2. VAT Productivity and VAT Thre sholds in Selected Countries and Regions, 2002................................................................................. 7 3. Corporate Tax Rates and Implicit Tax Bases ................................................... 9 4. Summary Indicators of Ce ntral Government Expenditure ..............................13 5. Social Indicators (Average 1992–2002) ..........................................................14 II. 1. Public Sector Employment and Employee Compensation, 1998 ....................19 2. Total Civilian Central Government Employment............................................20 3. Wage Bill, 1998 ...............................................................................................21 III. 1. Net Income Position of the BRH .....................................................................24 2. Estimated BRH Losses Under Alternative Scenarios, 2005............................27 IV. 1. Adequate and Actual Reserves, 1998–2004 ....................................................34 2. Reserve Adequacy Indicators in Low-Income Countries................................36 3. Reserve Requirements on Foreign Currency deposits in Selected Dollarized Low-Income Economies ....................................................37 V. 1. Exports to Most Im portant Trading Partners ...................................................40 2. Rigidity of Employment, 2004 ........................................................................44 Figures I. 1. Tax-to-GDP Ratio for Low-Income Countries, 1980–1999............................10 2. Central Government Expenditure and Revenue, 1990–2005............................................................................................12 II. 1. Public Employment in Comparable Countries, 1998 ......................................18 2. Public and Private Sector Wages by Position in 2004.....................................22 III. 1. BRH Bonds......................................................................................................26 IV. 1. Gross Reserves, 1990–2004.............................................................................30 2. Reserve Indicators, 1998–2004........................................................................33 - 3 - V. 1. Export Base Concentration ..............................................................................41 2. Exports by Sector.............................................................................................42 3. Assembly Sector Wage Costs, 2002................................................................45 4. Cost of Electricity ............................................................................................46 5. Bank Intermediation Margins, 2004 ................................................................47 Statistical Annex 1. National Accounts at Current Prices................................................................49 2. National Accounts at Constant Prices..............................................................50 3. Origin of Gross Domestic Product...................................................................51 4. Agricultural Production ...................................................................................52 5. Savings and Investment ...................................................................................53 6. Monthly Changes in th e Consumer Price Index ..............................................54 7. Consumer Price Index......................................................................................55 8. Changes in Consumer Prices by Category.......................................................56 9. Prices of Selected Items...................................................................................57 10. Selected Price Indicators..................................................................................58 11. Minimum Wage Rates .....................................................................................59 12. Central Government Operations ......................................................................60 13. Central Government Operations ......................................................................61 14. Central Government Current Revenue.............................................................62 15. Accounts of the Telecommunications Company.............................................63 16. Accounts of the Electricity Company..............................................................64 17. Accounts of the Port Authority........................................................................65 18. Accounts of the Airport Authority...................................................................66 19. Accounts of the Water Supply Company.........................................................67 20. Accounts of the Central Bank of Haiti.............................................................68 21. Accounts of Commercial Banks ......................................................................69 22. Consolidated Accounts of the Banking System...............................................70 23. Sectoral Distribution of Commercial Bank Credit...........................................71 24. Origin, Destination, and Financing of Bank Credit.........................................72 25. Annual Change in Credit Extended by the Banking System...........................73 26. Indicators of Commerci al Banking Sector Soundness.....................................74 27. Interest Rates....................................................................................................75 28. Reserve Requirements by Category of Deposit and Institution.......................76 29. Reserve Position of the Commercial Banks.....................................................77 30. Balance of Payments........................................................................................78 31. Net International Reserves...............................................................................79 32. Selected Foreign Trade Indices........................................................................80 33. Composition of Exports, f.o.b..........................................................................81 34. Exports of Light Manufactures to the United States........................................82 35. Principal Commodity Exports..........................................................................83 36. Composition of Imports, c.i.f...........................................................................84 37. Official Grants .................................................................................................85 38. Loan Disbursements.........................................................................................86 - 4 - 39. Stock of External Public Debt..........................................................................87 40. Scheduled External Public Debt Service .........................................................88 41. Stock of External Arrears.................................................................................90 Appendix I Summary of the Tax System.........................................................91 - 5 - I. FISCAL PERFORMANCE AND MEDIUM-TERM ISSUES 1 A. Introduction 1. Haiti’s government finances have been characterized by low and volatile levels of revenue and expenditure. Since mid-1990s, central government revenues have remained at around 7–9 percent of GDP, while expenditures have fluctuated more widely, between 9 percent and 16 percent of GDP, reflecting primarily the volatility of external assistance. The weak domestic revenue base and unstable external flows, as well as poor expenditure targeting, have left spending on education, health, and infrastructure in Haiti well below the levels observed in other low-income countries. 2. This suggests there are two significant constraints on the government’s ability to provide adequate social services and tackle the chronic underinvestment in physical and human capital. The first is the very low yield of the tax system which has left the tax/GDP ratio at a level that is inadequate to support Haiti’s development needs. The second is the severe weakness in expenditure management, which impedes efficient use of domestic resources and external financing. 3. This chapter reviews key trends in Haiti’s fiscal performance over the past decade and discusses various options for strengthening the fiscal system. It suggests that a key challenge will be to generate adequate resources to support development, which requires an increase in outlays on social programs, security, and infrastructure investment to at least the levels observed in other low-income countries. This would be an ambitious goal, and would require a substantial and sustained effort to improve expenditure management and raise domestic revenue. 4. The rest of the chapter is organized as follows. Section B reviews revenue trends and key features of the tax system, and Section C the potential for raising the tax/GDP ratio. Section D reviews recent expenditure trends. The paper’s conclusions are presented Section E. B. Central Government Revenue—Current System 5. The central government’s revenue/GDP ratio declined to around 7–9 percent over the past decade, from a level of over 10 percent of GDP in the 1980s. Haiti’s tax/GDP ratio is well below that in other low-income countries, reflecting the low yield from income, excise, and trade taxes (Table 1). 2 1 The principal author of this chapter is Thomas Dalsgaard (FAD) with inputs from Dominique Simard (MCD) and Olumuyiwa Adedeji (FAD). 2 Note that local government taxes are not included in the comparison due to lack of data availability. However, fiscal decentralization is very limited in most low-income countries and the role of local government taxation is marginal. - 6 - Nominal GDP per capita (U.S. Dollars) Social of which: of which 2000-01 Sample of which of which security Payroll Sales taxes Import E xport Property Average size Total Tax Total Corporate taxes taxes Total or VAT Excises Total duties duties taxes Haiti 1/ 440 9.6 9.6 1.8 0.7 0.0 0.1 4.8 3.1 1.1 2.8 2.8 0.0 0.1 Low Income Countries 2/ 462 30 18.4 14.4 4.0 2.0 0.8 0.0 5.5 3.3 1.9 3.7 2.6 0.3 0.1 of which: Benin 3/ 380 17.0 15.2 3.5 1.8 0.6 0.3 7.4 6.3 0.3 3.9 2.5 0.1 0.2 Guinea 3/ 410 10.5 9.8 1.6 ... ... ... 4.8 2.9 1.4 2.1 1.6 0.1 ... Lower middle income countries 2/ 1,829 25 23.4 18.4 4.5 2.3 2.2 0.1 7.6 5.3 2.2 3.3 3.1 0.2 0.3 Upper middle income countries 2/ 4,793 21 26.1 21.6 4.5 2.5 5.6 0.1 8.6 6.3 2.7 2.6 2.6 0.0 0.3 High income countries 2/ 4/ 21,170 32 32.2 26.8 9.0 2.6 6.9 0.3 8.8 6.3 2.7 1.3 1.2 0.0 0.7 Sources: Government Finance Statistics (IMF); and International Financial Statistics (IMF). 1/ 2004/05 budget. 2/ GDP per capita per year for low-income countries: below 1,000 USD per year; lower-middle-income countries: 1,000 - 3,100 USD; upper-middle-income countries: 3,100 - 8,000 USD; higher-income countries: a bove 8, 000 USD. 3/ 2003: Benin and Guinea have similar incomes per capita and sizes of population as Ha iti. 4/ European Union countries do not report statistics on international trade taxes to Government Finance Statistics Table 1. Haiti: Comparison of Central Government Tax Structure Revenue Taxes on income, profits and capital gains Domestic taxes on goods and services International trade taxes (In percent of GDP, unless otherwise noted) - 7 - 6. Haiti’s weak revenue performance is due to a combination of a narrow tax base and weak tax administration. The tax and investment codes, although containing positive features such as comprehensive income taxation levied on a world-wide basis, allow for exemptions and deductions that seem generous by international standards. One of the shortfalls of Haiti’s tax system appears to be tax administration and enforcement in the provinces, where in the past few years only about 7 percent of all central government tax revenue has been collected. Some of the main tax policy issues are discussed below. 3 The value added tax 7. The value added tax (TCA) brings in revenues comparable to those of low-income countries. In fact, VAT productivity in Haiti is not far from some of the better performers among the group of low-income countries and the averages for the OECD and the Western Hemisphere (Table 2). 4 However, this comparison also demonstrates that raising VAT productivity in Haiti to Western Hemisphere average would yield an additional VAT revenue equivalent to above 1 percent of GDP. Table 2. VAT Productivity and VAT Thresholds in Selected Countries and Regions, 2002 VAT revenue (percent of GDP) VAT rate (percent) VAT productivity 1/ VAT threshold (in U.S. dollars) Haiti 2.5 10 0.25 2,700 Benin 2/ 6.3 18 0.35 57,000 for trading 21,500 for others Guinea 2/ 2.9 18 0.16 76,000 for trading Western Hemisphere 6.1 - 0.4 - OECD 6.7 - 0.4 - Source. IMF staff reports; OECD Revenue Statistics and Fund staff calculations. 1/ VAT productivity measures how much revenue as a percent of GDP is raised per percentage point of the VAT rate. 2/ 2003: Benin and Guinea have similar incomes per capita and sizes of population as Haiti. 8. Improvements to Haiti’s VAT could boost its revenue raising capacity and improve its competitiveness and productivity. Currently, there are several features that constrain revenue and could act as impediments to economic growth. First, the VAT threshold is unusually low compared with other low-income countries (Table 2), which could mean that the capacity of the revenue administration is being unduly strained to cover a large 3 An overview of the main features of the tax system is provided in the Statistical Annex. 4 VAT productivity measures how much revenue as a percent of GDP is raised per percentage point of the VAT rate. - 8 - number of VAT payers. 5 Second, unlike in most other countries with VAT, imported petroleum products are exempt thereby reducing revenues. 6 Third, in contrast to standard practice, exports are exempt rather than zero rated, which may lead to tax evasion in other sectors. Excises 9. Revenues from excises are lower than in other low-income countries (Table 1). Since the collection of customs duties and domestic consumption taxes (excises and VAT) takes place at the border, the low yield likely reflects weaknesses in the administration of borders and smuggling. 7 In addition, the level of some of the excises levied in Haiti is low by international standards. 8 This is partly due to the fact that some specific excise rates have not been adjusted for inflation since the mid-1990s. 9 Moreover, the excise system for some goods, such as tobacco, treats imported and domestically produced goods unequally, thereby introducing a distortion which favors domestic production. Taxation of capital income 10. The tax on personal capital income does not raise significant revenue. The tax law provides for taxation of interest, dividends, and capital gains. However, the revenue base has been narrowed by the complete exemption granted to individuals and companies from tax on interest received on deposits in foreign-owned banks and the generous deductions from the capital gains tax. 10 Besides narrowing the revenue base, these exemptions distort economic decisions by discouraging intermediation by domestic banks and encouraging investment in buildings and land. 5 For developing countries the Fund normally recommends a threshold of US$30,000 depending on the country-specific circumstances. 6 However, customs duties on gasoline amount to 57.8 percent of value at customs. 7 Some 70 percent of total VAT collection in Haiti takes place at the borders (Ebrill, et al., 2001). 8 For instance, the excise on gasoline is around G10, or US$0.25 per gallon. Some of the key ad valorem excise rates are: luxury foodstuff: 5 percent; alcoholic beverages: 4–5 percent; tobacco products: 12 percent; cars: 5–20 percent. A more thorough analysis of effective taxation of selected goods compared with neighboring countries would need to be carried out before a final judgment can be made on the revenue potential from the excises. 9 Shukla and Porto (2004). 10 Reflecting the exemptions, total government revenue from these sources included in the 2004/05 budget is only G9 million (0.5 percent of total personal income taxes). - 9 - Corporate income tax 11. Corporate tax revenues as a percent of GDP are low compared with other low-income countries. The effective statutory corporate tax rate—estimated at around 33 percent—as well as the top corporate rate of 35 percent, are comparable to other countries. 11 However, as a share of GDP revenue from this tax is less than half that collected in other low-income countries. The implied corporate income tax base is estimated at about 2.5 percent of GDP, or less than half of that in other low-income countries, but the shortfall may also reflect other factors such as weaknesses in tax administration and generous tax incentives (Table 3). Table 3. Corporate Tax Rates and Implicit Tax Bases Corporate tax revenues (Percent of GDP) Average statutory corporate rate (percent) Average implied corporate tax base (percent of GDP) Haiti 1/ 0.8 33.0 2.3 Haiti, unweighted average rate 0.8 23.5 3.2 Low-income countries 2.0 34.6 5.8 Lower middle-income countries 2.1 31.7 7.3 Upper middle-income countries 2.6 29.8 8.7 High income-countries 2.5 32.6 8.3 Source: Keen and Simone (2004) and Fund staff calculations. Note. Revenue data for Haiti are for 2004/05, while data for the other countries are for 2001–2001. 1/ Data from Faria, et al. (1998). Tax incentives 12. Haiti’s investment code significantly erodes the tax base. It contains numerous tax holidays (including for indirect taxes) for a broad spectrum of activities and organizations. 12 For example, in 1998, one third of processing industries and artisanal enterprises operating for the local market were exempted from taxation by the investment code (Faria, et al., 1998). Tax holidays can also be negotiated with the tax authorities, adding to uncertainty, lack of transparency, and rent seeking. 11 Unlike most other countries, Haiti applies a five rate progressive corporate income tax. The effective tax rate is from Faria, et al. (1998). 12 Haiti provides income tax holidays for up to 15 years, followed by tax reductions for five subsequent years for designated firms. Haiti also grants VAT holidays, against international best practices, since a well-functioning VAT regime credits inputs and is, hence, not a disincentive to investment. Furthermore, Haiti grants customs holidays for a period as long as 20 years. - 10 - C. Potential for Catching Up 13. The experience of other low-income countries illustrates the difficulty of raising the tax/GDP ratio (Figure 1). Over the past 20 years, only 13 out of a representative sample of 41 low-income countries managed to raise tax/GDP ratios, and the average annual increase for this group was about 0.3 percentage points of GDP. 13 The majority of countries, including Haiti, witnessed declining tax/GDP ratios. Figure 1. Tax-to-GDP Ratio for Low-Income Countries, 1980-1999 Togo Mozambique Nigeria Myanmar Tanzania C.A.R. Sierra Leone Indonesi a Zambia Senegal Kenya Côte d'Ivoir e Guinea Madagascar Niger Cameroon Ethiopia Gambia India Banglades h Burkina Faso Comoros Rwanda Pakistan Uganda Benin Burundi Lesotho Malawi Nepal Zimbabwe Solomon Island s Bhutan Mali Chad Ghana Papua New Guinea Equatorial Guinea Republic of Congo Haiti -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 Change in tax revenue to GDP Sâo Tomé and Principe Source: IMF, Fiscal Affairs Department. 14. The experience of countries such as Ghana and Uganda suggests that well- managed tax reforms can raise tax revenues significantly. In Ghana, the tax revenue/GDP ratio increased by almost 10 percentage points from the early 1980s to the late 1990s, to reach its current level of about 16 percent of GDP. In Uganda, the revenue/GDP ratio rose from about 7 to about 11 percent of GDP during the 1990s. These gains were underpinned by policy reforms that included: (i) lowering of top marginal income tax rates for persons and corporations; (ii) broadening the tax base—for example, by eliminating tax incentives for corporations and including fringe benefits in the personal income tax base; and (iii) expanding the base for indirect taxes, most notably the VAT. On the administration side, reforms included: (i) creation of autonomous tax and customs administrations; (ii) reorganization of the tax and custom administration departments along functional lines (payment, enforcement, audits, rather than by type of tax); (iii) computerization; and (iv) improvement of taxpayer registers. 13 See IMF Fiscal Affairs Department database. - 11 - 15. In the case of Haiti, there are several possible channels for increasing the tax/GDP ratio. First, the existing tax administration could be strengthened and enforcement expanded to the provinces. Second, tax administration could be improved by increasing voluntary compliance and self-assessment, improving collection procedures, developing audit plans and procedures, and reorganizing along functional lines. Third, various tax policy options could be considered—both to raise revenues and to facilitate tax administration. 14 Additional measures could include: • Elimination of tax incentives in the investment code—with existing preferences grandfathered—and (if deemed necessary) replacing tax holidays with a general scheme of accelerated depreciation; • Strengthened taxation of fringe benefits, for instance by eliminating their deductibility on the employer side; • Comprehensive coverage of personal capital income in the tax net; • Increasing holding tax on property above some relatively high threshold; • Broadening of the VAT base, including repealing the VAT exemption on imported petroleum products; • Increasing specific excises, at least in line with inflation, and increasing existing ad valorem rates; • Increasing the VAT rate—at 10 percent, it is at the lower end of the range among low-income countries. 15 16. However, there does not appear to be scope for significant changes to marginal income tax rates and external trade taxes. Raising income tax rates above the present 35 percent for corporations and 30 percent for individuals could be distortionary and encourage avoidance. However, aligning the two top rates at 30 percent, and perhaps moving to one single rate for corporations could reduce incentives for high-income individuals to incorporate. The capacity to raise external tariff rates is limited by Haiti’s international trade commitments. 14 Some of these options have been recommended in earlier IMF reports (Faria, et al, 1998) and by Shukla and Porto (2004). 15 Although this could raise concerns regarding the impact on the poor, the negative impact could be offset by targeted measures on the expenditure side. - 12 - D. Trends in Central Government Expenditure 17. Over the past 15 years, central government expenditure in Haiti has averaged 11 percent of GDP, with large annual variations reflecting fluctuations in tax revenues and external financing (Figure 2). While tax revenues have remained low and relatively stable in recent years, external financing has fluctuated widely in response to political developments. The massive inflow of foreign aid under President Aristide in 1990–91 was followed by an embargo under the military regime (1992–94). Subsequently, international assistance was revived during 1995–2000 (under President Préval), but aid flows declined after the disputed 2000 elections. In 2004, following the change of government and in response to the natural disasters, aid flows started picking up again. Figure 2. Haiti: Central Government Expenditure and Revenue, 1990–2005 0 2 4 6 8 10 12 14 16 18 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Capital exp. Other current exp. Wages and salaries Total revenue Percent of GDP Source: The Haitian authorities. 18. The composition of government expenditure over the past decade was characterized by a large decline in the share of government wage bill and a sharp increase in other current expenditure. 16 The government wage bill—at 3 percent of GDP in 2003/04—is now significantly below the levels found in other low-income countries. 17 The decline was particularly pronounced after 2000, reflecting the freeze on nominal wages in the public sector. Expenditures on goods and services and subsidies increased strongly, 16 Other current expenditure includes goods and services, subsidies and interest payments. 17 For PRGF eligible countries, the average central government wage bill constitutes some 6-7 percent of GDP (see the chapter on Public Sector Employment in Haiti). - 13 - and a rising proportion of these expenditures was channeled through discretionary ministerial accounts. 18 Government capital spending was volatile, illustrating the difficulties in establishing a multi-year investment program under the conditions of unstable external financial assistance. 19. Government expenditures on education, health, and infrastructure are low (Table 4). Cross-country comparisons should be interpreted with caution—especially since Haiti has traditionally relied more than many other low-income countries on private financing and private sector provision of social services such as health and education. Nonetheless, the low level of direct government spending in these areas helps explain why Haiti has one of the poorest social indicators in the world (Table 5). Low educational and health standards, combined with an inadequate physical infrastructure, are likely to be among the key factors behind Haiti’s growth record and declining per capita income. Table 4. Summary Indicators of Central Government Expenditure (Annual average 1992–2002) Expenditure in percent of GDP Average population (In millions) Average nominal GDP per capita (In U.S. dollars) Real GDP growth rate (In percent) Total Education Health Capital Haiti 7.3 405 -1.1 10.9 1.3 2.0 1.8 Selected PRGF- countries 1/ 16.1 339 4.4 22.1 3.3 2.3 7.8 Low-income countries 2/ 36.0 417 3.5 17.8 1.3 3.5 - Selected Western Hemisphere PRGF- countries 3/ 4.6 774 3.5 30.9 3.9 3.8 10.2 Source: World Economic Outlook (WEO), Government Finance Statistics (GFS), World Development Indicators Database and various country reports, Ministry of Finance of Haiti (MEF) and Fund staff estimates. 1/ Cambodia, Ghana, Guinea, Kenya, Mauritania, Nepal, and Uganda. 2/ As defined in the World Bank database on World Development Indicators (1992-2001). 3/ Bolivia, Guyana, Honduras and Nicaragua. 18 The increase in the share of spending on goods and services is frequently symptomatic of weak expenditure control and lack of transparency. In Haiti, the surge in expenditure channeled through discretionary accounts was largely attributed to weak governance and the weaknesses in government expenditure management procedures. See Lienert (2004). - 14 - Table 5. Social Indicators (Average 1992–2002) Population with access to improved water Population with access to improved sanitation Illiteracy rate (percent of Population) Life expectancy at birth (Years) Infant mortality rate (Per thousand) (In percent) Haiti 54 53 87 46 28 Selected PRGF-countries 1/ 42 51 91 55 54 Low-income countries 2/ 40 59 84 76 44 Selected Western Hemisphere PRGF-countries 3/ 20 65 53 84 79 Sources: World Development Indicators, 2002, World Bank. Ministry of Finance of Haiti (MEF) and Fund staff estimates. 1/ Cambodia, Ghana, Guinea, Kenya, Mauritania, Nepal, and Uganda. 2/ As defined in the World Bank database on World Development Indicators (1992-2001). 3/ Bolivia, Guyana, Honduras, Nicaragua. E. Conclusions 20. Haiti needs ambitious fiscal reforms to support its development. A broad-based development strategy would require substantially larger government resources than are currently available to expand access to social services in the areas of health and education and to develop physical infrastructure. Experience from other countries suggests that increasing the tax/GDP ratio by 4 percentage points or more over a decade would be an enormous challenge—but also that this could be feasible with a continued and committed effort. This would involve broadening the base of the corporate and personal income taxes, as well as the VAT, increasing excises and possibly also the VAT rate, and improving tax and customs administration. A near-term emphasis should be placed on tax and customs administration in the provinces, broadening the VAT base, and possibly raising excise rates. 21. Government expenditure would need to be subject to much tighter prioritization, scrutiny, and control. Notably, the trend toward lower spending on wages and higher spending on other current expenditures would need to be reversed, with a substantial expansion of government spending focused on development. - 15 - References Ebrill, L., M. Keen, J-P. Bodin, and V. Summers, 2001, The Modern VAT (Washington: International Monetary Fund). Faria, A., J-L. Foizel, M. van Wichelen, and L. Mokkaddem, 1998, “Haiti: Toward a Reform of the Direct Taxation and Exemption System,” International Monetary Fund Technical Assistance Report (not for public use) (Washington: International Monetary Fund). International Monetary Fund and the World Bank, 2004, “Global Monitoring Report 2004: Policies and Actions for Achieving the MDGs and Related Outcomes”, Report prepared for the April 25, 2004 meeting of the Development Committee. Keen, M. and A. Simone, 2004, “Tax Policy in Developing Countries: Some Lessons from the 1990s, and Some Challenges Ahead,” to appear in Sanjeev Gupta, Ben Clements, and Gabriela Inchauste (eds): Helping Countries Develop: The Role of the Fiscal Policy. Kneller, R., M. F. Bleaney, and N. Gemmell, 1999, “Fiscal Policy and Growth: Evidence from OECD Countries,” Journal of Public Economics, Vol. 74, page 171–90. Lienert, I., 2004, “Haiti: Public Expenditure Management System and Technical Assistance,” International Monetary Fund Technical Assistance memo (not for public use). Shukla, G.P., and L. Porto, 2004, “Étude du Systeme Fiscal d’Haiti,” Inter-American Development Bank, memo (not for public use). - 16 - II. PUBLIC SECTOR EMPLOYMENT IN HAITI 1 A. Introduction 1. The public sector in Haiti has played a very limited role in the provision of social services. Since the mid-1990s, total central government expenditure (including investment) has averaged 13 percent of GDP, the ratio of public employment as a percent of population has remained below 1 percent, and public sector wages have fallen in real terms. The small size of the public service has severely constrained the government’s ability to provide basic social services. For example, in Haiti only 24 percent of births are attended by skilled health personnel, compared with 99 percent in high-income OECD countries, 55 percent in developing countries, and 31 percent in least developed countries. 2 However, Haiti’s student-to-teacher ratio in primary schools is 34, similar to that of low-income countries. 3 2. The small size and very limited capacity of the government contrast with the massive development challenge facing the country. Haiti is the poorest country in the Western Hemisphere and suffers from weak economic growth, high population growth rates, massive unemployment, high poverty and illiteracy rates, and poor health indicators. Haiti’s long history of poor economic performance suggests the possibility that the limited size of its public service may be constraining the country’s development. 3. This paper illustrates that Haiti’s public sector employment is far smaller than in other countries. Section B of the paper surveys recent literature on the economic functions of the civil service. Section C evaluates public employment and wages in Haiti by analyzing the size and cost of the public service based on international comparisons and comparing public wages to those in the private sector. The final section provides a summary of the findings. B. Why Does a Sound Civil Service Matter? 4. A growing body of research illustrates the connection between institutions and economic development. For example, Knack and Keefer (1997) examine cross-country data and find that weak institutional systems prevent poor countries from “catching-up” with developed countries. Hall and Jones (1998) demonstrate that differences across countries in capital accumulation, productivity, and output per worker are driven by differences in institutions and government policies. Acemoglu, et al. (2003) also find a strong relationship between institutions and growth volatility, as well as a link between the occurrence of crises and institutional quality. These conclusions are underscored by the World Economic Outlook (2003), which finds that 1 The principal author of this chapter is Laura Jaramillo Mayor. 2 See Human Development Report (2004). 3 World Development Indicators. - 17 - indicators of governance are correlated with income, growth, and the volatility of growth. Similarly, Arteta, et al. (2001) conclude that economic liberalization is more likely to have strong growth effects in countries with strong institutions. 5. Strong institutions require adequate expenditures by the state. A well functioning public administration is necessary to enforce the rule of law, the tax system, and property rights, as well as to assure physical security and provide basic social services. This in turn, requires an appropriate size and remuneration of public sector employees so that the government has the administrative capacity to formulate and implement public policy and ensure the appropriate allocation of public goods and services. Public sector wages that are too low may encourage rent-seeking and corruption, and diminish civil service productivity. 4 6. An efficient public sector requires more than adequate staffing and pay. Efficiency typically also requires: (i) making the civil service both affordable and in line with the role a government assigns itself; (ii) providing the incentives, skills, and motivation to civil service employees to enable them to provide essential public goods and services; and (iii) enhancing civil service management and accountability at all levels. 5 C. Public Employment and Wage Trends in Haiti 7. In the analysis below, Haiti’s civil service is compared with countries with similar characteristics. In general, higher income countries tend to have stronger institutions and higher spending on civil service than low-income countries. 6 However, even compared with countries with similar income and other characteristics, Haiti’s public sector employment appears low. Public employment 8. By comparison with other countries, public sector employment is extremely modest in Haiti. Between 1998 and 2004, public sector employment declined from 0.9 percent to 0.7 percent of the population. 7 By comparison, civilian government employment in a sample of 4 Van Rijckenghem and Weder (2001) find significant relationship between relative wages and corruption. Ul Haque and Sahay (1996) also find that low government wages lead to a decline in public sector productivity and a rise in corruption. 5 See Lienert and Modi (1997). 6 Findings on Wagner’s Law—government spending increases disproportionately as societies get richer, because public affairs become more complex to administer and demand for public services is income- elastic—have been mixed. See Shiavo-Campo (1998), Chang (2002), and Ansari, et al. (1997). 7 Data for public sector employment in Haiti provided by the Ministry of Economy and Finance are based on the number of issued pay checks which may overstate the actual number of employees. Data for other countries are from the Public Sector Employment Data Base (PSEDB), Bureau of Statistics, International Labor Organization, 2003. [... middle sections omitted for long document ...] - 97 - APPENDIX Summary of the Tax System (As of March 16, 2005) Tax Nature of Tax (Base) Exemptions and Deductions Rates 5.2.3. Excise duties on petroleum products (Decree of February 1995, as amended in May 1996) Specific duties collected by Customs at the time of importation. Electricité d’Haïti and government bodies; diplomatic missions; and certain NGOs. Fixed duties (in gourdes per gallon): Gasoline G 3.30 Diesel oil G 3.10 Kerosene G 2.50 Aviation fuel G 0.25 Lubricants G 0.15 Heating oil G 0.10 Variable duties (in gourdes per gallon): Based on original reference levels, as follows: Gasoline G 6.80 Diesel G 4.00 Kerosene G 0.44 The price at the pump is to be adjusted upwards or downwards when the change in the landed cost exceeds 5 percent. 5.2.4. Excise duties on other items and on carbonated beverages Specific duties on refined sugar, flour, and carbonated beverages manufactured locally. Sugar: G 20.00 per 100-lb bag Flour: G 3.75 per 100-lb bag Carbonated beverages: 07.20 per 144 bottles 5.2.5. Excise duties on luxury foodstuffs Levied on a wide range of imported foodstuffs. 5 percent of the value, c.i.f. - 98 - APPENDIX Summary of the Tax System (As of March 16, 2005) Tax Nature of Tax (Base) Exemptions and Deductions Rates 5.3. Business fees and licenses 5.3.1. Business fees (Decree of September 28, 1987) Annual presumptiv e professional fee payable by any individual or legal entity engaged in a professional activity in Haiti, levied by the commune of which the taxpayer is a resident Communes are classified into three groups, the main one being Port-au-Prince and its suburbs. This fee is either fixed, on the basis of the schedule and depending on the location of the business and the sector of economic activity involved; or variable, based on the difference between the turnover and the wage bill of the business. Local governments, farmers, stock breeders, fishermen, wage earners, cooperatives, artists, authors, musicians, and singers. Professional fee (business license): Group I : From G 40 (small retailers) to G 2,000 (mining industries) Average: G 400–1,000 For exempt export industries: G 7,500 Groups II and III : ½ and ¼, respectively, of the Group I rate. 5.3.2. Licenses (Decree of January 13, 1978) Annual tax on the authorization to engage in cert ain industrial or commercial activities or certain professions. All foreign and domestic enterprises are subject to this tax, as are manufacturers of products for local consumption, distilleries, breweries, and tobacco factories. Tobacco factories G 2,500 Breweries G 1,500 Distilleries G 20 per boiler Local factories G 250–1,000 based on turnover - 99 - APPENDIX Summary of the Tax System (As of March 16, 2005) Tax Nature of Tax (Base) Exemptions and Deductions Rates 5.4. Motor vehicle tax 5.4.1. Tax on initial registration (Decree of February 18, 1987) Based on the value, c.i.f. 25-seat van 2-ton truck Van (12–24 seats): 5 percent of the value, c.i.f. Truck (<2 tons): 5 percent of the value, c.i.f. Other vehicles G 0–35,000 5 percent G 35,000–55,000 10 percent G 55,000–75,000 15 percent Over G 75,000 20 percent 5.4.2. Annual fee (April 1993, as amended in May 1996) (Registration tags) Based on the cylinders, weight, and number of wh eels of private and public vehicles. Excise of 10 percent on a ll vehicles with a capacity of at least 2000 cubic centimeters. Private (gasoline): 4–8 cylinders: G 60–110 Public (gasoline): 4–8 cylinders: G 60–120 Public (diesel): 2–8 cylinders: G 60–100 Public (trucks): ½ –8 tons, 4–6 wheels: G 80–240 - 100 - APPENDIX Summary of the Tax System (As of March 16, 2005) Tax Nature of Tax (Base) Exemptions and Deductions Rates 6. Taxes on international trade and transactions (Regime amended in February 1995) 6.1. Import duties 6.1.1. Customs tariff A minimum tariff is applied to merchandise originating from countries that have entered into trade agreements with Haiti. A reduced tariff is applied to merchandise originating from WTO member countries. A maximum tariff, generally double the minimum tariff, is applied to merchandise originating from other countries. Certain industrial machinery, tractors, works of art, plant seeds and bulbs, fertilizers, and a few other chemical products. Educational materials; health products; gasoline; kerosene; all products destined to agriculture; and chemicals. The tariff currently contains 21 sections with a total of 99 chapters. Except in the case of certain staples and the items mentioned below, the following tariff structure is temporarily applicable. General rate Previous rate New rate ( In percent ) 0–10 0 15–20 5 25–30 10 35–50 15 Specific rates Rice 50 3 Grains 50 0 Vegetable oils 20 0 Sugar 20 3 Cement 10–33 3 Gasoline 57.8 57.8 - 101 - APPENDIX Summary of the Tax System (As of March 16, 2005) Tax Nature of Tax (Base) Exemptions and Deductions Rates 6.1.2. Verification fee Import surtax, now levied at the Haitian port of entry rather than at the foreign port of shipment. Assembly sector, personal imports; and diplomatic missions. 5 percent of the c.i.f. import value. 7. Other taxes 7.1. Identification card tax (Decree of September 28, 1987, as amended through May 1993) Annual tax for the issuance or validation of the identification card levied on all individuals, legal entities, and sole proprietorships. Diplomatic and consular services. Legal entities: G 600 Sole proprietorships: G 5O–15O Individuals Wage earners (<G 20,000): G 15 Wage earners (G 20,000–100,000): G 150 Vehicle owners: G 150 Persons subject to property taxes: G 150 Wage earners (>0 100,000): G 250 Source: Ministry of Economy and Finance.